Extended Limitation (Section 74) applies only to Fraud Claims; Cannot extend to other regular demands

Issue

Whether the “extended period of limitation” (5 years) invoked under Section 74 for a specific allegation (fraudulent ITC from non-existent entities) can be automatically applied to other unrelated demands in the same Show Cause Notice (SCN), or if those other demands must adhere to the normal limitation period (3 years).

Facts

The SCN: A Show Cause Notice was issued to the assessee under Section 74 (fraud/suppression cases).
The Allegation: The core allegation was that the assessee availed irregular ITC based on invoices issued by “non-existent entities” (fake firms), triggering the extended limitation period.
The “Other” Claims: The SCN also included other demands/claims under different heads (likely standard interpretational disputes or errors).
Assessee’s Defense: The assessee argued that the extended limitation was invoked specifically for the “fake invoice” issue. Therefore, the “other claims” in the notice (which did not involve fraud) should have been governed by the normal limitation period (Section 73) and were thus time-barred.

Decision

Specific Invocation: The High Court noted that the SCN specifically invoked the extended period only in relation to the “irregular ITC from non-existent entities against whom alert circulars were issued.”
Exclusion of Other Claims: The Court held that this specific invocation excludes the application of the extended period to the other claims made in the same notice. You cannot use a specific fraud allegation to “save” other time-barred general demands.
Stay on Recovery: Observing that a major part of the claim might be time-barred (since the extended period shouldn’t apply to it), the Court directed the Revenue not to recover any sum based on the Order-in-Original until the next hearing.
Interim Relief: The stay was granted in favor of the assessee.

Key Takeaways

No “Blanket” Fraud: The Department cannot use one allegation of fraud (Section 74) to extend the timeline for the entire assessment. If an SCN contains mixed issues (e.g., Issue A is Fraud, Issue B is Calculation Error), Issue B must still be issued within the normal 3-year window.
Severability of Notice: Courts are increasingly viewing SCNs as severable. If the “fraud” part is isolated, the “non-fraud” parts cannot ride on its coattails to bypass the limitation statute.
Defense Strategy: If you receive a Section 74 notice, carefully segregate the demands. Identify which specific line items actually involve “suppression” and which are just routine audit objections. Argue that the routine items are time-barred.

HIGH COURT OF CALCUTTA

Silverton Metals (P.) Ltd.

Joint Commissioner, Central Tax, Haldia CGST & CX Commissionerate^*

Om Narayan Rai, J.

WPA No.10056 of 2025
CAN Nos. 1 and 2 of 2025

DECEMBER 1, 2024

Vinay Kumar Shraff, Dev Kumar Agarwal and Abhilash Mishra, Advs. for the Petitioner. Uday Shankar Bhattacharya and Anurag Ray, Advs. for the Respondent.

ORDER

1. This writ petition assails an order in original dated January 31, 2025 passed by the Joint Commissioner, Central Tax, Haldia CGST & CX Commissionerate under Section 74 of the CGST Act, 2017/WBGST Act, 2017 (hereinafter referred to as the ‘said Act of 2017’).

2. Mr. Shraff, learned advocate appearing for the petitioners submits that the order in original suffers from gross jurisdictional errors. He submits that the order in original has been passed invoking Section 74 of the said Act of 2017 with a view to take advantage of the extended period of five years available under the provisions of the said section, although the facts of the instant case would reveal that such period was not available to the respondents.

3. Inviting the attention of this Court to the detailed notice to show cause (Annexure P-17 at pages 122 to 138 of the writ petition), he submits that the authority has invoked the extended period available under Section 74 on the ground that the petitioner has availed irregular ITC by engaging in fraudulent activity and willful misstatement on the basis of invoices purported to have been issued by the nonexistent entities. It is submitted that in support of the allegation pertaining to the non-existent entities relating which the extended period was invoked, the petitioners have already paid the taxes. It is submitted that as regards the other contention of the CGST authorities regarding violation of other provisions of the said Act of 2017, the extended period has neither been invoked nor is the same invocable and therefore the impugned proceeding could not have been continued further.

4. Mr. Shraff further submits that since the extended period has been invoked only as regards the availment of irregular ITC on the basis of invoices purported to have been issued by alleged nonexistent entities against whom alert circular had been issued by the CGST authorities, such extension could not have been applied to the other demands/claims made by the CGST authorities under other heads.

5. Mr. Uday Shankar Bhattacharya, learned advocate appearing for the respondent CGST authorities, has contended that a wholesome reading of the showcause notice would indicate that the extended period has been invoked in respect of all the claims made by the CGST authorities. He seeks time to take instructions in the matter in order to make further submissions.

6. Having heard learned Advocates for the respective parties and having considered the material on record, this Court is of the prima facie view that the specific reference of invocation of extended period by the responder in the show cause notice to the contention that the petitioners have availed irregular ITC “on the basis of invoices purported to have been issued by non-existent entity against whom alert circular has been issued by Kolkata South and Kolkata North Commissionerate” excludes application of extended period to the other claims made by CGST authorities in the said notice to show cause. However, a final view on this can be taken only upon hearing the respondent authorities in full on this.

7. Since, this Court is of the prima facie view that the proceeding in respect of the major part of the claim may not have been initiated by invoking the extended period, therefore, the respondent CGST authorities should not proceeded to recover any sum on the strength of the order in original dated January 31, 2025 till the next date of hearing.

8. As requested by Mr. Uday Shankar Bhattacharya, list this matter once again on December 17, 2025 when he shall be ready with appropriate instructions.